Kentucky City’s Bankruptcy Strategy Gets Its Day in Court

Michael A. Sweet was featured in The Bond Buyer article, “Kentucky City’s Bankruptcy Strategy Gets Its Day in Court.” Full text can be found in the December 2, 2015, issue, but a synopsis is below.

Rather than accepting a mediated settlement that cut legal debt by 60%, the city of Hillview has chosen to file for bankruptcy. The city, which is home to 9,000 Kentucky residents, does not have the ability borrow $5 million, run the city and pay the bonds back which helped influence the decision of filing.

Fox Rothschild’s Michael Sweet said the city’s solvency will be at the heart of the hearing.

"I do think that solvency is a question," Sweet said in an interview with The Bond Buyer. "It's going to be a battle of experts."

Solvency was a major issue in Vallejo, Calif.'s 2008 bankruptcy, he said, adding that Vallejo is amuch bigger city with a much bigger budget than Hillview's. It was found to be insolvent.

Sweet said that Truck America has argued that the city can "raid taxes" to pay the judgment, and that the city does not intend to affect a plan of adjustment, because it only plans to restructure the debt of one creditor.

"I would say that goes towards good faith," said Sweet, who added that court documents indicate that the city has tried to resolve the debt. "It's not like they one day decided to file bankruptcy. They didn't make this decision lightly."

The hearing will give the city an opportunity to explain how it got to this point, and what has been considered, including whether to raise taxes, he said.

"I think that beats the good faith argument," Sweet said, adding that the insolvency argument could still be an issue.